November 2021 Vol. 76 No. 11
Features
NA, Global Energy Pipeline Construction Plans
By Jeff Awalt, Executive Editor
As global markets claw their way back from the 2020 pandemic trough and energy demand continues to rise, oil and gas producers remain largely committed to fiscal restraint, prices have risen to multi-year highs and storage has yet to recover from historic lows.
Along with projected higher demand, these trends have brightened the outlook for the global pipeline sector and raised expectations for ongoing recovery over the next few years, with construction activity weighted more heavily toward natural gas infrastructure. The speed and extent of that recovery is still uncertain, however, and is likely to vary widely from one regional economy to the next.
Global gas demand is expected to rise by 3.6 percent in 2021 before easing to an average growth rate of 1.7 percent over the following three years, according to the International Energy Agency’s (IEA) latest quarterly Gas Market Report published in early July. A strong rebound in 2021 from last year’s decline is expected to lift demand above pre-Covid levels, followed by more moderate increases through 2024, IEA said.
Natural gas demand growth in 2021 mostly reflects economic recovery from the Covid-19 crisis, but it’s set to be driven in the following years in equal proportions due to both economic growth activity and by the ongoing shift from more polluting fuels such as coal and oil to natural gas in sectors such as electricity generation, industry and transportation, IEA projects.
“The rebound in gas demand shows that the global economy is recovering from the shock of the pandemic and that gas is continuing to replace more emissions-intensive fuels,” said Keisuke Sadamori, IEA director of Energy Markets and Security.
Pipeline construction spending
Total worldwide capital spending on pipeline installations is projected to increase about 10 percent this year after plunging nearly 30 percent in 2020, according to Westwood Global Energy Group, with North America, Asia, Eastern Europe and the former Soviet states accounting for about three-quarters of all capex for new pipeline construction in its 2021–2025 forecast period.
“Improving sentiment and outlook for commodity prices is expected to help projects progress through to completion, as well as boost demand for new installations in regions, where increases in production capacity will require new pipeline infrastructure,” Westwood predicts.
A recent report by investment firm Morgan Stanley highlighted the spike in LNG demand as yet another indication of economic recovery and future infrastructure demand.
Longer term, Morgan Stanley said it continues to see an upcycle for global LNG markets through 2025, with demand set to grow at two times the rate of supply, “leading to a capacity shortfall by 2023.” This could prove to be a positive trend for related construction in the United States and other LNG-exporting nations.
Growing demand for LNG and related natural gas infrastructure is a key driver of current and planned pipeline construction worldwide. Gas infrastructure accounts for 66 percent of projected new pipeline installations through 2025, Westwood said, while joining others in warning of ongoing downside risk to their forecasts.
“Chief among these are geopolitics, focus on climate change and the increasing momentum of the energy transition particularly in the Western hemisphere,” it said. A reluctance among some lenders to finance fossil fuel projects may add additional risk.
REGIONAL UPDATES
North America
North America was in the midst of significant pipeline expansion before the pandemic shutdown and, accordingly, suffered the greatest regional decline in new construction activity over the past year and a half. The construction downturn was not entirely driven by economic conditions, however, as legal challenges caused construction delays for projects such as PennEast and Line 5 and cancellations of major projects including the Atlantic Coast and Keystone XL pipelines.
New pipeline construction activity remains substantially lower than during the pre-pandemic boom, when soaring crude oil production in the prolific Permian Basin of West Texas and New Mexico outgrew pipeline takeaway capacity to Gulf Coast refining and export markets. Operators who rushed to meet producer demand were faced with significant excess capacity as the economy ground to a halt in early 2020.
North American oil and gas demand and pricing improved in the first half of 2021, prompting some energy firms to say they plan to boost spending in the coming months after cutting expenditures over the past two years. Any near-term spending increases will be measured, however, as most firms continue to focus on boosting cash flow, reducing debt and increasing shareholder returns rather than adding output.
The midyear consensus among market analysts suggests extra spending may only replace natural declines in well production, rather than boosting output, exacerbating the capacity glut. U.S. crude oil production is expected to fall by 210,000 barrels per day in 2021 to 11.1 MMbpd, the U.S. Energy Information Administration (EIA) said in July.
The outlook for natural gas pipeline and LNG infrastructure appears somewhat brighter, with a number of North American projects including Canada LNG and the related 416-mile Coastal GasLink pipeline moving forward, and additional U.S gas pipelines in the planning stages.
Natural gas prices for the second half of 2021 rallied more than 25 percent during May-June, spurred by higher gas demand for electricity production due to an unseasonably hot start to the summer, strong exports to Mexico, increased U.S. industrial demand and lower hydropower generation in the Western United States caused by below-normal reservoir levels.
“Heading into next year, we expect (U.S.) associated gas production to increase with rising basin level gas-oil ratios and additional oil-directed drilling activity, particularly from private producers,” according to the Morgan Stanley forecast. “We also expect higher prices to incentivize modest dry gas production growth to resume in the Haynesville and Marcellus” by the second half of 2021.
Among projects aimed at domestic natural gas markets, Enbridge said in April that it is moving ahead with upgrades to its pipeline network serving the U.S. Northeast from the Appalachian Basin. The first phase, at an estimated cost of $28 million, will include a connection to a UGI Utilities facility in Pennsylvania and a compression boost to move an additional 18 MMcf/d on its Texas Eastern system. Similar links are to be built for other regional customers in the second phase of the program, Calgary-based Enbridge said.
Enbridge also plans to start construction this year on a tunnel beneath the Straits of Mackinac, connecting Lake Huron and Lake Huron, as part of its Line 5 replacement project. The proposed tunnel, which has faced multiple legal challenges, would rehouse a 4-mile stretch of the aging 540,000-bpd oil pipeline that currently runs along the lake bed.
An Enbridge project to replace its Line 3 pipeline scored a court victory in June when the Minnesota Court of Appeals affirmed a state regulator’s decision that there is sufficient need to replace the line. Functional capacity of the 1960s-era pipeline, which delivers crude from Alberta’s oil sands to U.S. Midwest refiners, has been constrained by age and corrosion. Replacing it will allow Enbridge to roughly double its capacity to 760,000 bpd.
Also in June, the U.S. Supreme Court ruled in favor of a consortium of energy companies seeking to seize land owned by the state of New Jersey to build the federally approved PennEast Pipeline, a 116-mile project designed to transport 1.1 Bcf/d of natural gas from the Marcellus shale formation in Pennsylvania to customers in Pennsylvania and New Jersey. PennEast expects the first phase of the $1.2 billion project to begin service in 2022, with completion of the second phase into New Jersey in 2023.
In the U.S. Midwest, Navigator CO2 Ventures plans to build a 1,200-mile carbon capture pipeline system designed to capture and store 12 million tons of CO2 per year. The project, which would span five states, is supported by the BlackRock Global Energy & Power Infrastructure Fund, and Valero is the anchor customer, Navigator said. Navigator a binding open season for the project in June.
WBI Energy recently received U.S. Federal Energy Regulatory Commission (FERC) approval for construction of its proposed North Bakken Expansion Project – a 250 MMcf/d pipeline spanning 82 miles of western North Dakota, along with a new compressor station and associated infrastructure. WBI targets completion of the $260 million project by the end of the year.
FERC also approved Enable Midstream’s 134-mile Gulf Run natural gas pipeline in Louisiana, which would transport gas to the Qatar Petroleum/Exxon Mobil Golden Pass LNG export plant under construction in Texas. The first liquefaction train at Golden Pass is expected to enter service in 2025.
Summit Midstream has started construction of the 134-mile Double E pipeline and estimated $425 million project to transport natural gas from the Delaware Basin to various delivery points in and around the Waha Hub in West Texas. The company said it has received $175 million of commitments from three commercial banks to finance the development.
In Mexico, the completion and startup of the Cuxtal 1 gas pipeline marks a step forward in President Andres Manuel Lopez Obraor’s energy program to bolster economic development the Yucatan region, which is growing at twice the national average.
That new pipeline, along with additional construction to be completed before the president’s term expires, will transport natural gas from the north to Chiapas to supply thermoelectric plants, including the new Merida combined cycle power plant, with a generation capacity of 493 MW. It is expected to begin operations in May 2022 and combined cycle operation in the second half of 2023.
Cuxtal 1 is part of a broader gas infrastructure expansion that will include
a compression station and parallel pipelines (loops) to boost capacity to
more than 500 MMcf/d.
Africa
Oil remains the primary fuel in Africa, and there are a number of sizable crude oil pipelines in various planning and construction stages. But with nearly 500 Tcf of proven natural gas reserves, there is growing opportunity for natural gas to displace oil in Africa – especially in the power generation sector, with South Africa leading demand. In addition to regional demand, an abundance of natural gas has fueled a growing LNG export market.
Nigeria National Petroleum Corporation (NNPC) has plans to construct the biggest natural gas pipeline in that country’s history – a $2.8 billion, 384-mile project from Ajaokuta to Kano. The 40-inch (1,016-mm) line will transport 3.5 MMscf/d from multiple gathering projects in southern Nigeria, resulting in the establishment of a connecting network between its eastern, western and northern regions.
Tanzania and Kenya are constructing a 345-mile gas pipeline between Tanzania’s Dar es Salaam and Tanga and on to Mombasa, in Kenya’s coastal city of Mombasa. The project, which is being developed under a contract by China Petroleum Technology and Development Corp.
A group of 15 West African countries also is studying the feasibility of extending the 420-mile West African Gas Pipeline, owned by the JV West African Gas Pipeline Co. (Wapco). Launched in 2010, the pipeline connects the Escravos-Lagos pipeline at Nigeria Gas Co.’s Itoki export terminal to Takoradi in Ghana, with laterals to points in Ghana, Benin and Togo.
Uganda has held promise as an oil producer since discovering reserves estimated at 6 billion barrels in the Albertine Rift Basin, near its border with the Democratic Republic of Congo, in 2006, and government leaders have begun taking steps toward the infrastructure necessary to bring those reserves to market. In April of this year, Uganda, Tanzania and oil firms Total and CNOOC signed agreements that will kickstart the construction of the $3.5 billion East African Crude Oil Pipeline (EACOP).
Asia Pacific
Almost half of IEA’s projected worldwide increase in natural gas demand through 2024 comes from the Asia Pacific region, where China’s appetite for natural gas and LNG imports continues to lead the region’s fast-growing development of natural gas infrastructure.
China – the region’s largest energy consumer and the first in and out of the pandemic shutdown is making an outsized contribution in rising global LNG demand forecasts. “China has been the biggest outlier to the upside,” Morgan Stanley wrote of its updated projections, with LNG imports up 27 percent during the first five months of the year, compared with the same period of 2020.
Among recent projects, China Oil & Gas Piping Network Corp. (PipeChina) has begun building a $1.31 billion (8.5 billion yuan), 257-mile pipeline to transfer natural gas from a 2.2 million-tons-per-year LNG terminal in Tianjin to Xiong’an New Area, Hebei Province. The pipeline will include interconnections for Gazprom’s Power of Siberia pipeline, which began delivering natural gas to China in late 2019, as well as domestic pipelines delivering gas from the Xinjiang Autonomous Region, PipeChina said.
The 1,865-mile long Power of Siberia pipeline transports gas from the Chayandinskoye and Kovytka fields in eastern Siberia, to Heilongjiang, which borders Russia, and goes onto Jilin and Liaoning, China’s top grain hub. Flows via the Power of Siberia are expected to gradually rise to 38 Bcm/year in 2025, potentially making China Russia’s second-largest gas customer after Germany.
In India, a significant expansion of natural gas pipeline infrastructure is underway as it seeks to double the share of gas in its energy mix to 15 percent by 2030. Toward this goal, companies are investing $60 billion in a network to expand LNG import facilities in the west and build pipelines connecting them to every state before the current government’s term ends in mid-2024, according to India’s energy minister.
Among the major projects currently under construction by India’s biggest gas utility, Gail Ltd is building the 1,660-mile Urja Ganga pipeline project to connect the eastern states of Bihar, West Bengal, Jharkhand and Odisha, with a capacity of 16 MMscf/d – an amount equal to roughly 10 percent of India’s total daily consumption. Gail hopes to bring the system online by the end of this year.
A northeast gas grid is also under construction to connect eight states in northeastern India, a region bordering Bhutan, Myanmar, Bangladesh and China, with completion expected in 2023. Earlier this year, India approved funding for a $774 million gas pipeline in the region.
In addition to the gas buildout, Indian Oil, Bharat Petroleum and Hindustan Petroleum formed a consortium to construct the 1,700-mile Kandla-Gorakhpur liquefied petroleum gas (LPG) pipeline. The project, scheduled for completion in 2024, will source LPG from west coast import terminals and supply bottling plants along the route. Indian Oil will expand the capacity of its Kandla LPG import terminal to feed the project.
Europe
With energy consumption plateaued in Europe in recent years, natural gas continues to take taking a growing percentage of the mix, sparking political conflict over the region’s reliance on Russian energy and a market-share showdown between Russian pipeline gas and U.S. LNG imports.
European gas demand during the second quarter of 2021 was on pace for an estimated 20 percent gain over the same period of 2020, Morgan Stanley said. On the supply side, LNG imports have recently fallen below 2019 levels as cargoes were being diverted to Asia and Latin America, according to the firm’s Global Gas & LNG report. Russian import volumes have remained below pre-pandemic levels this year, while Norwegian gas supplies have lagged year-over-year due to outages.
As natural gas demand in Europe has grown largely due to coal-to-gas switching, so has the need to expand or replace aging natural gas infrastructure. That scenario becomes more complex as a drive toward broader commercial adoption of hydrogen prompts debate over the construction of new hydrogen pipelines vs. the conversion of natural gas lines, or some combination of the two.
Much of the European pipeline construction in recent years has been driven by either the construction of major Russian gas pipelines across the Baltic and Black seas or the construction of new pipelines by European Union countries who fear overreliance on Russian gas imports.
A long-running conflict over the nearly completed construction of Gazprom’s Nord Stream 2 pipeline appears to have been effectively resolved within a few months of U.S. President Joe Biden’s inauguration when Secretary of State Antony Blinken said the United States would no longer pursue sanctions against companies involved in the project
Among the ongoing pipeline construction projects aimed at diversifying Europe’s natural gas sources, Polish and Danish gas grid operators Gaz-System and Energinet are developing the Baltic Pipe, a 528-mile bidirectional project that gives Denmark, Poland and Sweden direct access to Norway’s North Sea gas and moves Poland closer to its goal of becoming eastern Europe’s gas hub.
The project will deliver up to 353 Bcf per year upon expected completion in 2022 at a projected cost of $1.88 billion. Poland and Denmark are financing construction, along with a $243 million contribution from the European Commission. Construction of the project stalled in Denmark earlier this summer for its Environmental Protection Agency to study whether the project may harm breeding grounds for protected mice and bat species. Energinet said it will not resume construction work until permits are approved.
Among numerous hydrogen projects under consideration in Europe, Energinet and the Netherlands’ Gasunie published a technical pre-feasibility study this year for transporting hydrogen via a 217- to 279-mile pipeline from Esbjerg or Holsetebro, Denmark, to Hamburg, Germany.
The study concluded that such a connection can be established cost-efficiently, according to the companies, which said they want to initiate a market dialogue and unlock the export potential for green hydrogen from Denmark to demand centers in Germany.
Middle East
The Middle East has continued to build out its natural gas and LNG infrastructure following large discoveries in the Eastern Mediterranean during the past decade. Some governments also remain focused on the construction of new crude oil pipelines, although the pandemic has slowed progress of at least one major project.
The Iraqi oil ministry in December announced the completion of its pre-qualification process for construction of an estimated $18 billion oil pipeline that would carry 1 MMbpd of oil from Basra through the Jordanian port of Aqaba and across the Red Sea to Egypt.
The first phase of the project would be constructed in Iraq across a 435-mile stretch between Rumaila and Haditha. Developers delayed the May 2020 deadline for technical offers for the project, known as the Iraq Jordan Export Pipeline (IJEP), due to COVID-19. Energy ministers in both Jordan and Iraq have reiterated their support for the project but have yet to reschedule a meeting with interested bidders.
In neighboring Iran, President Hassan Rouhani launched a 620-mile crude oil pipeline from Goreh to Jask in June, noting its strategic value as a secondary export route “whenever the Strait of Hormuz faces danger.” About 20 MMbpd of oil passes through the narrow strait, making it vulnerable to military blockades.
Russia & CIS
Russia’s growth strategy for natural gas pipeline exports has targeted Europe since the 1950s, but it is expanding its flow of gas to the east by targeting China’s growing energy demand.
Last year, state-owned giant Gazprom completed construction of the 1,865-mile Power of Siberia pipeline across Eastern Russia to China. This spring, Gazprom began a feasibility study for the Power of Siberia-2, which could deliver another 1.77 Tcf/year across Mongolia to China.
In April, Gazprom approved a feasibility analysis of the proposed Soyuz Vostok gas trunkline. That pipeline would become an extension of the Power of Siberia 2 gas pipeline in Mongolian territory.
Rosneft announced in March that it is selling some of its southern oil assets in order to focus on the giant northern Vostok Oil project, which will start later this decade and require an estimated $135 billion in investments. Among other infrastructure, the Vostok mega oil project calls for the construction of 15 towns to house oilfield workers, approximately 4,350 miles of infield pipe, 3,500 km of electrical lines, two airports and a seaport.
South & Central America
The midstream sector in South America was hit especially hard by low prices and weak demand brought on by Covid-19 shutdowns, with some companies cutting capital spending by a third, but there have been some glimmers of a rebound in recent months.
With Colombia’s Ministry of Mines and Energy projecting a national gas shortage by 2023-2025 due to the production declines in the Ballena and Cuisana regions, producers are looking to offset those losses by tapping their significant gas reserves in the Lower Magdalena area and delivering them to market via the $400 million Jobo-Transmetano pipeline.
The project is designed to interconnect with the National Transportation System at the Guacharacas Operating Station and scheduled to enter service in December 2024.
In Peru, Promigas subsidiary Gasnorp has signed a 32-year concession contract with Peruvian state for distribution of natural gas through a new pipeline network in the provinces of Piura, Talara, Sullana, Paita and Sechura.
The company expects a $230 million investment for construction of a 35 MMscf/d pipeline to deliver gas to homes, businesses and industries in the region. The project includes the connection of 10 service stations for the automotive market, 45 industries and 640 companies, Gasnorp said.
South America in recent months has been a source of incremental demand for global LNG imports, fueled in part by low hydropower generation in Brazil, joining Asia Pacific in drawing LNG imports that would otherwise have gone to Western Europe.
Before the coronavirus outbreak, Brazil’s state energy research office said its growth projections justified construction of 16 new pipelines, but their future is uncertain after the country endured one the world’s most severe Covid-19 outbreaks.
Among the recommended pipelines, five would be offshore; among others, the largest would be a 563-mile project connecting Sao Carlos to the capital city, Brasilia. Further east, the state of Bahia has already begun construction on the final section of the 190-mile, $100 million Southwest Gas pipeline.
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